D.C. Circuit Vacates and Grants En Banc Review of Decision That Declared CFPB Unconstitutional

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In an order on February 16, 2017, the U.S. Court of Appeals for the District of Columbia Circuit vacated the panel decision and granted the petition by the Consumer Financial Protection Bureau for an en banc rehearing in PHH Corporation, et al., v CFPB. An earlier decision by a three-judge panel in the case ruled that a provision of Title X of the Dodd Frank Act was unconstitutional in providing for a single individual to head the agency who could only be removed for cause. Given that the petition for rehearing is set before the eleven judges in the Circuit on May 24, a decision is unlikely before the end of the summer.

The order will complicate the administration’s task if it seeks to remove Richard Cordray as Director of the CFPB prior to the end of his term in July 2018. Because the full court vacated the panel decision, the administration can no longer argue that the DC Circuit has held Director Cordray to be serving at the pleasure of the President. Therefore, unless and until the en banc court affirms the panel decision, the President presumably could only dismiss Director Cordray for cause, based on findings of “inefficiency, neglect of duty, or malfeasance in office” under the Dodd Frank Act. There is little precedent for how, procedurally, the President would go about dismissing Cordray on this basis; for example, whether Cordray would be entitled to a hearing under the Due Process clause of the Constitution and, if so, whether the President could act summarily with a hearing to follow. Such a hearing would take time and be a great distraction for the administration, and the termination would doubtlessly be appealed to the courts along with a petition to stay the removal.

For these reasons, President Trump may not consider firing Cordray within the next few months to be a battle worth fighting when weighed against the alternative strategy of simply waiting out the Director’s term. In the meantime, the DC Circuit or the Supreme Court may rule favorably to the President and make it easier to dismiss Cordray. There are also many ways for the President to clip the CFPB’s wings during this period, including taking positions contrary to the agency in litigation and isolating the CFPB or freezing it out of inter-agency decision-making processes. For these reasons, it is entirely possible that the President will not attempt to remove Director Cordray in the immediate future.

The court directed that the parties address three issues: 

  1. Is the CFPB's structure as a single-Director independent agency consistent with Article II of the Constitution and, if not, is the proper remedy to sever the for-cause provision of the statute? 
  2. May the court appropriately avoid deciding that constitutional question given the panel's ruling on the statutory issues in this case? 
  3. If the en banc court, which has today separately ordered en banc consideration of Lucia v. SEC, 832 F .3d 277 (D.C. Cir. 2016), concludes in that case that the administrative law judge who handled that case was an inferior officer rather than an employee, what is the appropriate disposition of this case?

The order indicates that the court is uncomfortable ruling on the constitutional issues in the case, given that it may be possible to dispose of it without reaching those issues. One of the criticisms of the panel’s decision has been that having overruled and remanded the decision of the CFPB director on statutory grounds, it was unnecessary for the panel to go further and declare the structure of the agency unconstitutional. Therefore, we expect that the en banc decision ultimately will simply vacate the part of the panel decision that found the for-cause dismissal provision unconstitutional and remand to the agency based upon the other holdings of the panel. It is also possible that the court could overturn the Director’s decision based upon the theory under consideration in the Lucia case, but we can only analyze the likelihood of that outcome after it is briefed for the court.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Attorney Advertising.

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